Additional LBTT – is a trust liable?

Additional dwelling supplement (“ADS”) was introduced by virtue of the Land and Buildings Transaction Tax (Amendment) (Scotland) Act 2016 and came into force on 1 April 2016. ADS will be applied to most purchases of additional dwellings where an individual owns more than one dwelling and is not replacing their main residence. It is charged at 3% on a straight line basis, and is added to the land and buildings transaction tax (“LBTT”) liability for each transaction over £40,000. For purchases made by “unnatural persons” (companies and some trusts), the additional dwelling rule does not apply, and ADS will be added to the LBTT liability arising on all relevant purchases regardless of whether they are additional.

There are some trust arrangements that will not fall under the unnatural persons rules and so the automatic charge to ADS may be avoided. In these cases it will not be the trustees who are treated as the buyer, but someone else who has sufficient ownership interests in the property.

Currently, for the purposes of LBTT, beneficiaries of bare trusts are treated as the buyer when trustees purchase a property. This treatment continues to apply under the 2016 Act. This treatment has been extended by the Act to apply to purchases of property by the trustees of certain other trusts, where the beneficiaries have ownership interests in property that are similar to the interests of the owner of a property. A liferent trust in Scotland is an example.

Where the underlying beneficiary is to be treated for LBTT/ADS as the beneficial owner of the property it will be necessary for practitioners to consider their position as an individual under the additional dwellings rule, rather than that of the trustees under the unnatural persons rule. It will be necessary to take into consideration property owned by their spouse, civil partner, cohabitant or child of a beneficiary under a relevant trust in which they hold an interest, as these may count towards the number of dwellings owned by the buyer/beneficiary.

Relevant guidance can be found here.